Money and Markets Brief: Rally on pause and Carney’s ‘final’ speech

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Canadians are waking up from their long weekend to global markets that have mostly retreated slightly from what at the end of last week were at least five-year highs for many, and in the U.S. and Germany, all-time highs.

For the second straight day, markets in Asia, other than Tokyo, closed lower, were slipping in Europe except for Britain, and poised to open flat to lower in the U.S., but up slightly here.

On Friday, the globally lagging S&P/TSX, which is up just over one per cent so far this year, jumped 105.45 to 12,613.05 on news of weaker than expected inflation of just 0.4 per cent, giving the Bank of Canada lots of room to stimulate the economy if needed, and reports indicating the recovery in Canada’s main export market is ongoing.

The Canadian dollar, which fell nearly a full cent to 97.17 cents US on the prospect of potentially lower rates here and less economic stimulation by the U.S. Fed, was edging back up this morning. However, the currency will be going a lot lower, according to TD Bank which forecasts it will fall to 90 cents US by early next year.

On Wall Street, futures markets this morning were indicating that both the blue-chip Dow and broad-based S&P 500, which are up what BMO economist Sal Guatieri notes is an “eye-popping” 17 per cent this year, will open flat following declines Monday from their all-time highs.

Adding to expectations that the Fed could soon begin withdrawing some of its economic stimulus were comments Monday from Fed member Charles Evans expressing cautious optimism that the recovery will be self-sustaining by 2014.

Here, Mark Carney, who leaves next month to take over as head of the Bank of England, today gives what is being billed as his “final speech as Governor of the Bank of Canada” to the Montreal Board of Trade on the topic “Canada Works.” CIBC economist Avery Shenfeld notes, however, that Carney’s comments may be of more interest in Britain than here “given his impending job shift.”

The good news for Carney is that Britain today reported that inflation there fell more than expected in April to a seven-month low of 2.4 per cent.

“A lot of the fall is temporary,” Scotiabank’s Alan Clarke told The Telegraph. “However, it probably does spare Mark Carney the bother of writing to the Chancellor to explain why inflation is above 3 per cent within his first month in office.”

Meanwhile, there’s little on the domestic economic calendar this holiday-shortened week to move markets here other than the March retail sales report tomorrow which is expected to show a drop due to falling gasoline prices but an increase in volumes, which Shenfeld notes would help “real” economic growth.

In the U.S., however, there are potentially market moving reports on last month’s sales of existing homes on Wednesday and of new homes on Thursday, both of which are expected to signal that the housing market recovery there is continuing.

“The data on housing market activity this week are expected to show a continuation of the moderate upward trend in sales and a further sharp increase in prices,” says BMO’s Guatieri.

Evidence of that housing recovery came today from Home Depot, which reported a better than expected 18 per cent increase in net income for the first quarter. Further, the world’s largest home improvement retailer boosted its full-year earnings and revenue forecasts, indicating that it expects the U.S. housing recovery to continue.

In other economic and financial happenings today:

Prime Minister Stephen Harper heads off on a trade mission to Lima, Peru and Cali, Colombia, leaving as the Morning Brief notes “exactly 90 minutes before Question Period gets underway” allowing him to avoid Opposition questions about the widening Senate scandals.

Apple CEO Tim Cook and senior executives appear this morning before a U.S. Senate panel that issued a report yesterday that the “iPhone maker has created a web of offshore entities to avoid paying billions of dollars in U.S. taxes.”